Moody’s Zandi: Fate of US Economy Hinges on Greece

The U.S. economy will suffer if Greece abandons the euro and exits the currency zone in a messy fashion, says Moody's Analytics Chief Economist Mark Zandi.

Fortunately for the U.S., Europe's largest economy, Germany, will likely do whatever possible to keep Greece in the eurozone.

Greece recently failed to produce a coalition government in wake of May 6 elections, with many candidates opposed to harsh austerity measures that come hand in hand with bailout money coming in strong.

A new set of elections is set for June 17, but lingering fears persist that politicians from the leftist Syriza political coalition will gain enough votes and ditch austerity afterwards, which could open the door to a Greek exit from the currency.

"If the eurozone fractures, the U.S. economy will have a big problem," Zandi writes in a Philadelphia Inquirer article.

"The fragile stock market will fall sharply and it will become much more difficult for U.S. firms to borrow. European government debt will be worth a lot less; European banks, which own a lot of that debt, will be under severe pressure to rein in lending, including to U.S. companies. American banks are in good shape, but they won’t be able to fill the void."

"U.S. trade with Europe will also slump, as will European tourism and investment. China and other emerging economies that export a lot to Europe will be hit hard; this, too, will ripple back on the United States. It is hard to see how the global economy will escape a new recession."

Just worrying about such a scenario is bad for U.S. stocks and ultimately, business in general, but fortunately, Europe will find a way to keep Greece in the currency bloc.

"It may be uncomfortable for the U.S. economy to depend so much on events across the Atlantic, but if the Greeks and Germans get it roughly right — and odds are they will — it will mean a much brighter economic future for all of us."

A recent round of opinion polls shows pro-bailout political parties in Greece are gaining ground.

The conservative Greek political party New Democracy has watched its popularity rise in the polls ahead of June 17 parliamentary elections, followed by the more radical and leftist Syriza, which has staunchly voiced opposition to austerity measures, Reuters reports.

Some poll results show New Democracy garnering enough votes to team up with its socialist ally PASOK and patch together a coalition government.

Elections held on May 6 saw the far more radical Syriza gain ground, which refused to negotiate with other political parties to form a coalition government, thus resulting in a June 17 ballot to end the standoff.

New Democracy head Antonis Samaras has stepped up attacks on Syriza, accusing the party of threatening to ditch austerity without telling Greeks what a move would mean — a messy exit from the eurozone and an economy in shambles.

"If Greece unilaterally rejects the bailout deal it will be isolated for years ... It will have no food, no drugs, no fuel. It will have to live with permanent power cuts," Samaras told party supporters at a rally, Reuters adds.